The Transaction Cost Theory within the Context of Economic Sciences

As one among the first researchers, Ronald H. Coase attempted to outline in his article "The Nature of the Firm"published in 1937 why economic activities take place to a significant extent through different institutions instead of exclusively through the markets. Coase's contribution was the key trigger of the revolution within microeconomics and was to become a reference basis to New Institutional Economics. The latter comprise apart from the transaction cost theory also the property rights theory, the principal-agent theory and the contract theory. Key proponents of the theories comprised under the umbrella of New Institutional Economics have been Williamson (1985,1991), Alchian and Demsetz (1972) and in German-speaking areas Albach (1980) and Picot (1982). New Institutional Economics aim at providing answers to the following principal questions: "Which economically quantifiable drivers promote the establishment and stability of real existing institutions?" "How to design institutions in order to achieve their goals in a cost efficient manner?" Yet in order to explore the issues, first the transaction cost theory had to be conceived. The theory in its own right is based upon a fundamental criticism of the neoclassical paradigm of balance under which factor allocation occurs solely through price mechanisms.